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Netflix fourth-quarter profit soars

Netflix Inc Tuesday reported a significantly higher fourth-quarter profit on a tax-related gain and that it had surpassed its fiscal 2005 target of acquiring 4 million subscribers.
/ Source: Reuters

Netflix Inc. Tuesday posted a sharply higher fourth-quarter profit on a tax-related gain and surpassed its fiscal 2005 target of acquiring 4 million subscribers, boosting its shares 10.5 percent in after-hours trade.

The online DVD rental company posted net earnings of $38.1 million, or 57 cents per share, compared with $5.6 million and 9 cents per share a year earlier. The latest results, which beat estimates, included a one-time benefit of 45 cents per share related to the recognition of the company’s deferred tax assets.

Revenue rose 35.5 percent to $195 million from $143.9 million a year earlier.

Analysts, on average, had expected net earnings of 9 cents per share and revenue of $194.5 million for the quarter, according to Reuters Estimates.

Churn, or the number of subscriber cancellations, dropped to a new low of 4 percent from 4.4 percent in the 2004 fourth quarter.

Subscriber acquisition costs rose to $40.65 from $34.64 per gross subscriber addition a year ago.

Netflix attained 4.2 million subscribers by year’s end, exceeding a goal that Chief Executive Reed Hastings had set in September 2004.

The company raised its 2006 subscriber target to 5.9 million from 5.65 million previously, Hastings said in a telephone interview with Reuters. He added that 5.9 million should be considered the bottom of a range.

Hastings added that online DVD rental companies are growing at the expense of brick-and-mortar video rental stores, which have seen a downturn in rental revenue.

Netflix forecast first-quarter revenue of $219 million to $224 million and said earnings could range from a net loss of $1.5 million to a net profit of $2.5 million.

For 2006, Netflix reiterated estimates calling for revenue of at least $960 million and net income of $29.5 million to $35.4 million.

Analysts’ average revenue targets call for first-quarter revenue of $216 million and 2006 sales of $959.7 million.